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December 22, 2008

IMF: ‘Very dark’ year ahead despite stimulus plans
International finance leaders delivered a grim forecast for 2009 on Sunday, warning next year could be even worse than this one despite a slew of government stimulus plans, reported AFP.

International Monetary Fund chief Dominique Strauss-Kahn predicted a "very dark" 2009 which could be worse than expected if states failed to take sufficient action to fight the crisis, facing economies big and small.

"Our forecasts are already very dark, but they will be even darker if not enough fiscal stimulus is implemented," he told BBC radio in London, predicting recession for advanced economies and decreasing growth for emerging ones.

"I can see that some measures have been announced, but I'm afraid it won't go far enough," he said.

The IMF has called for global fiscal stimulus of about two percent of GDP, equivalent to roughly $1.2 trillion.

The governor of the Bank of Spain was even more pessimistic, warning the world faced a "total" financial meltdown unseen since the Great Depression of the 1930s.

"The lack of confidence is total," Miguel Angel Fernandez Ordonez said in an interview with Spain's El Pais newspaper.

He noted that the inter-bank lending market was not functioning, spawning "vicious" cycles with economic activity among consumers, businesses, investors and banks essentially frozen.

"There is almost total paralysis from which no-one is escaping," he added.

Still, there was fresh movement to stop the meltdown, with a decision by US president-elect Barack Obama to boost by 500,000 jobs a three-million-job creation goal to kickstart the world's biggest and ailing economy.

Vice president-elect Joseph Biden also confirmed the Obama team was working on a second economic stimulus package which could top a trillion dollars according to some media reports.

"What we're doing is putting together what we think will be the economic package that will do two things. One, stem the haemorrhaging of the loss of jobs, and begin to create new jobs," Biden told ABC television's This Week programme.

"At the same time, we provide continuing liquidity for the financial markets."

Biden put no firm figure to the package that would follow the 700-billion-dollar Wall Street rescue deal inked by President George W. Bush in October -- and which has failed to reverse the plummetting US economy.

"There's going to be real significant investment, whether it's $600 billion or more, or $700 billion. The clear notion is, it's a number no-one thought about a year ago," he said.

Japan, too, took another step to jumpstart its moribund economy, drafting a record 88.55-trillion-yen ($1.01-trillion) budget for fiscal year 2009 -- up 6.6 percent from the initial budget for this fiscal year.

The increase reflects an emergency economic package that Prime Minister Taro Aso announced earlier this month in a fresh bid to stave off a prolonged recession in the world's second-largest economy.

In Europe, the Irish government said it was injecting 5.5 billion euros ($7.6 billion) to recapitalise three major banks: Anglo Irish Bank, Bank of Ireland and Allied Irish Banks.

The government's move follows revelations last week that Anglo Irish's chairman and former chief executive, Sean FitzPatrick, failed to disclose an 87-million-euro loan from the bank. He resigned on Thursday.

The Luxembourg subsidiary of embattled Icelandic bank Kaupthing got a rescue offer from a group of Arab investors, the Luxembourg government has confirmed.

"Besides the signature of the Belgian state, this agreement needs the acceptance of the creditor banks," the government said in a statement Saturday about the offer.

Kaupthing Luxembourg was placed in suspension of payments in October following the near collapse of Iceland's once-booming financial sector under the weight of the worldwide credit crunch. Deposits in both Luxembourg and Belgium have been frozen ever since.

At least one German banker, however, thinks the doom-and-gloom forecasts are overblown.

"Some compare the situation to that of 1929, others talk about the worst crisis in near memory," said Wolfgang Sprissler, head of the German bank HypoVereinsbank (HVB) in an interview with the Sueddeutsche Zeitung to appear Monday.

"It bothers me that the institutes in their studies try to outdo each other with more pessimistic scenarios," he said, adding that what is needed are signs of "optimism."

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